Are Damages or Punitive Damages Taxable?

The quick answer is damages or awards received for physical injuries or sickness are generally not taxable. However, punitive damages or awards are generally taxable if they are paid to compensate a taxpayer for non-personal injuries. Internal Revenue Code (IRC) Section 104 is the area of law that defines the taxable treatment of compensation for injuries or sickness. Continue reading →

Rape should be considered a physical injury and I would hope that the IRS, any state and the courts would agree to exclude any award due to rape as we feel it is a phsyical injury and exempt from taxable income.

I would have to confirm, but since being deaf should qualify as a disbility, I’m guessing it would be exempt based on the exceptions in the article. Make sure you get good tax advice before you file your tax return for that year. If you don’t get a 1099, then it seems as if the fast food company considered it not taxable, but they are not the one that would be liabile for the tax. Contact us if we can be of further assistance.

Joanna, Since you had a physical injury, your settlement shouldn’t be taxable. Make sure you determine if you have received a 1099 or will receive a 1099. If you do, then you will need your tax return to show that the amount isn’t taxable due to a physical injury award. Thank you for asking the question. Best of luck in healing.

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Hello Deanette. I’m not sure EEOC awards would be considered a damage related to a physical issue pursuant to IRC section 104. You will need to review this with your tax counsel. IRC section 104 is meant to allow taxpayers an exemption to excludes financial awards for physical damages. Normally, this is part of the negotiation during the law suit. I’m not sure that EEOC qualifies as an exemption under IRC section 104. Seems like the company that paid you, decided what was taxable and what wasn’t based on the 1099. If you don’t agree with that approach, you will need to have your attorney and tax preparer decide if the 1099 can be corrected.

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